Finance Company Act to increase financing channels

September 10, 2004

The Council for Economic Planning and Development (CEPD) has moved to diversify corporate and personal financing channels in Taiwan by approving a draft of the Finance Company Act. The act will make an additional NT$200 billion to NT$300 billion available for corporate and personal loans.

According to Article 12 of the act, companies that engage in the financial leasing, installment sales, factoring, or purchasing of monetary claims of financial institutions prior to the implementation of the new act will be allowed, with the approval of the competent authority, to reorganize as finance companies. This is expected to encourage the legalization of underground financial institutions and improve the health of Taiwan's financial market mechanisms.

The draft of the Finance Company Act consists of 48 articles in seven chapters, and covers the following topics and measures:

1. Non-banking businesses

2. Designating the Ministry of Economic Affairs as the competent authority.

3. Establishing a permit system.

4. Setting business categories: Loans, guarantees excluding bills and securities, bills discounting, and other businesses not restricted or banned by law (including businesses engaging in financial leasing, installment sales, factoring, and purchasing of monetary claims of financial institutions). The maximum interest rate is set at 30% per annum, higher than the 20% stipulated in the Civil Code.

5. Consumer protection: The competent authority may choose specific businesses of finance companies and publicly announce items that should be included or that should not be included in standard contracts. Finance companies will also be required to divulge information on interest rates, method of calculating interest, guarantee fees, and other fees charged to customers, in written form, over the Internet, or via other methods stipulated by the competent authority.

6. The competent authority's right of emergency discipline: If a finance company's losses exceed one-half of its paid-in capital, the competent authority may order the company to make up the gap within a specified time limit or to cease operations.

7. Strengthening the Finance Company Association's self-governance: The association should formulate provisions for loan-collection behavior and outsourcing for loan collections, and report those provisions to the competent authority for approval.

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